Unemployment – Dr. M. Ray Perryman

The latest job loss numbers are tragic, but not unexpected considering the COVID-19 pandemic and efforts to control its spread. Total nonfarm payroll employment fell by 20.5 million in April, with losses across all major sectors. The unemployment rate rose to 14.7%, a 10.3 percentage point increase over March. It’s the highest rate and the largest increase in the history of the series and will likely get worse.

The second-largest monthly loss of jobs was in 1945, as World War II ended and the massive industrial base supporting the war effort was dismantled. Job losses were almost two million in September 1945, less than one tenth of the April number. Not even close!!

It is crucial to emphasize that the April losses were inevitable when much of the economy was shut down and social distancing requirements implemented, and the jobs aren’t gone forever.

Almost half of workers in leisure and hospitality lost their jobs, with millions of positions eliminated in food services, bars, recreation, and accommodations. Health care jobs also went away for non-essential treatments such as routine dental and doctor visits. Childcare, building services, and personal services workers also saw notable layoffs. Retail stores have been hit hard, and employment has dropped in, among others, car sales and ground and air passenger transportation. Many other segments of the economy have been shuttered, with associated job losses.

In April, 23.1 million people were unemployed (the unemployment rate is measured from a survey of households, while the job losses noted above are derived from a survey of establishments). Almost 18.1 million of those individuals are “on temporary layoff.” Although some of these job losses will likely become permanent, many will be restored. People will go back to restaurants, stores, and dentists. Childcare and building maintenance will be needed again. Travel will resume.

The previous record unemployment rate was 10.8% in late 1982 (there were no official statistics in the 1930s). That was the year that we released our first forecast and I wrote a book on monetary policy, so I remember it quite well. Inflation and interest rates had recently soared to double-digit levels and the Federal Reserve under Paul Volcker fostered a major recession to bring them down. The rate peaked at 10.0% during the 2008-09 “Great Recession.” In both of those periods, structural problems caused jobs to disappear permanently. In fact, only 10.9% of unemployed persons in late 2009 indicated they were on temporary layoffs, compared to 78.3% last month.

These massive, unprecedented losses are causing financial distress and emotional harm for millions of individuals and families. It’s a terrible situation, but once the economy can safely reopen, we should begin to see meaningful relief. Be safe!!